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Eyes on stocks sell off, Fed policy outlook

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ECB likely to maintain current interest rates for now

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U.S. jobs data shows employment growth slowdown, not

collapse

By Samuel Indyk

LONDON, Nov 21 (Reuters) - Germany's 10-year bond yield

retreated from a six-week high on Friday, with investors

remaining focused on the sell-off in global equities and

expectations for Federal Reserve policy.

Among euro-denominated assets, investors often turn to

German bonds when global risk sentiment sours, given the

country's very low default risk and high bond market liquidity.

Bond yields move inversely with prices.

Stocks in Europe opened with steep losses, although U.S.

futures were recovering slightly after a sharp reversal on

Thursday that saw the S&P 500 close lower by 1.5%.

Germany's 10-year bond yield, the benchmark for

the euro zone, was down 2.5 basis points (bps) at 2.695%, having

hit its highest in six weeks on Thursday at 2.741%.

On Friday, investors were watching the euro zone PMIs for

any indication whether business activity in the bloc is

improving at the end of the year, after a strong increase last

month.

"Consensus is looking for marginal changes only," said

Michiel Tukker, ING senior rates strategist.

"As such, this would support a picture of slow but still

resilient growth."

EYES ON STOCKS, FED

With the European Central Bank looking likely to hold

interest rates for the foreseeable future, investors in euro

zone bonds were turning their attention elsewhere, including the

outlook for Fed policy.

Fed officials have generally signalled they are comfortable

with keeping interest rates on hold at the December meeting,

given still sticky inflation and a dearth of data due to the

government shutdown.

September's delayed U.S. jobs data, released on Thursday, would

likely have done little to swing policymakers either way, as job

growth accelerated but the unemployment rate ticked up.

"As a whole, while the report is largely history already, in

the absence of newer data, it continues to point to only a

slowdown in employment growth, not a collapse, and is not

screaming for more Fed rate cuts either," said Jan von Gerich,

chief analyst at Nordea.

Markets are now pricing about a 25% chance of a cut next

month, down from about 90% just a couple of weeks ago.

Shorter-end yields, which are more sensitive to changes in

interest rate policy, were also falling slightly on Friday.

Germany's two-year yield was down 2 bps at

2.004%.